Zim reels from economic crisis — AfDB

ZIMBABWE, which is reeling from economic implosion, is facing one of its worst economic tailspins since the hyperinflationary era due to weakening commodity prices and serious negative impact of drought, a top regional bank has said. This is despite a bullish outlook by government whose projections of 6,6% GDP growth are widely seen as baseless and pie in the sky.

By Bernard Mpofu

Government adopted dollarisation in 2009 after the economy had contracted by nearly 50% between 1998 and 2008.
Zimbabwe continues to experience a decline in economic growth which is widely projected at 1,6% in 2016. The country’s debt overhang at US$10,8 billion continues to be a major impediment to its re-engagement with the international community and limits access to concessional funding.

According to an AfDB internal memo titled: Zimbabwe Processing of Debt Arrears Clearance Information Note for July 2016: The African Development Fund-13 Report, the regional bank’s deputies agreed to ring-fence Transition Support Facility Pillar II resources for arrears clearance of Somalia, Sudan and Zimbabwe on a first come, first serve basis.

“The appreciation of the US dollar has particularly reduced the competiveness of the economy. The decline has led to rising youth unemployment, company closures and a crippling liquidity crunch mainly due to lack of confidence in the economy,” reads the AfDB memo.

“In addition, a negative country-risk premium arising from high levels of public debt (about US$7,1 billion) and limited external capital inflows (including remittances) have worsened the situation. The economic situation of Zimbabwe is a major issue of concern for the country, the region and its development partners.

“Zimbabwe faces an unprecedented economic crisis. This is aggravated by drought that has affected agriculture output and significantly reduced growth prospects for 2016. Economic activities are severely constrained by tight liquidity conditions resulting from limited external inflows and the fall in commodity prices at the world market leading to continued decline in mining output. Tax revenue have in turn declined thereby reducing the capacity of the government to meet its public expenditure obligations, including civil servants salaries.”

While the AfDB says the economic situation remains precarious, government sees the economy registering modest growth this year. Apart from weakening commodity prizes, AfDB said Zimbabwe’s economy remains fragile due failure to address legacies of the land reform progamme, lack of clarity over the indigenisation and empowerment policy, deterioration of infrastructure and effects of economic restrictions imposed by the European Union and the United States.

“The combined effect of the aforementioned factors has been a major economic crisis that manifests itself in the form of contracting manufacturing activity…,” AfDB says in its memo.